Indian bourses may see over 80 IPOs in next 5 years, says Redseer Strategy Consultants

“While the markets have been challenged, which has impacted the valuation of the tech companies a bit more than others, the potential is out there, especially for tech,” Redseer Strategy Consultants said in a report on Tuesday.

According to the report, India in the recent past has seen about 19 startups going for an initial public offering (IPO), including the likes of Delhivery, Tracxn, Sula Vineyards. With nine startups having filed their draft red herring prospectus (DRHP) with the regulator, and about 10 of them working on their DRHP drafts, about 80 startups may consider public listings in the next five years.

“Whatever the goals may be, you have the time and scope to achieve much better outcomes before the IPO and showcase it strongly,” Rohan Agarwal, partner at Redseer Strategy Consultants said.

Agarwal added that startups must focus on metrics including market leadership, a visible addressable market, multiple use cases, predictable revenues, high operating leverage, sustainable unit economics and a clear path to profitability.

Redseer Consultants also sees significant growth potential for Indian technology and new-age companies given that they have a much smaller share in the domestic public market capitalisation as of now. While about 25% of market cap in the US market could be attributed to tech or new-age players, in India only 1% can be attributed to tech/new age companies.

“We are just getting started with the journey of start-ups coming up and going towards their path to profitability, then looking at that public market journey,” according to the report.

However, it observed a steeper decline in stock performances of Indian technology IPOs vis-a-vis other consumer companies. The report cited worsening macroeconomic environment as one of the key reasons behind this pronounced decline.

It said that while traditional IPOs in India saw a milder drop in their valuations, faring at about 1.2-2.9 times their listing valuation, tech/new-age listings were took a harder hit, thus faring at about 0.2-0.9 times of their valuation during IPO.

Sharing a similar view on the sector, Coller Capital, in its Global Private Equity Barometer, highlighted that volatility in global macroeconomic environment reduced venture capital companies‘ interest in investments in technology, as per a view shared by almost half of the limited partners (LPs) surveyed for the report.

Funding in the tech sector was also hit in 2022, according to a report by market intelligence platform Tracxn. It pointed that while overall funding volumes in India dipped about 35% in 2022 (until 5 December), fintech and edtech were among the worst affected as funding plummeted 57% and 39% in these segments.